Paras Pharmaceuticals Ltd is headed for an auction with private equity investors Actis and Sequoia Capital appointing an investment bank for selling the Ahmedabad based firm. The company, with over-the-counter (OTC) brands like Moov, DermiCool and Krack, could attract valuations in the $600-800 million bracket, as MNC pharma giants are aggressively chasing acquisitions to bolster consumer health businesses in growth markets like India.

Actis and Sequoia together hold 70% stake in the company, while the original promoters, the Patel family, retain the rest. Morgan Stanley is believed to be advising Paras and its investors on a possible transaction.

Earlier this year, Abbott paid a blow-away premium to acquire Piramal Healthcare's branded prescription pharma business, as global pharma giants are hedging their portfolios against an avalanche of patent expires in the coming years. However, OTC or the consumer health business has been an oddity for the Big Pharma in India, and Paras could be one of the first serious bets it could take in a growing consumer market.

The OTC portfolio of Paras reported revenues of Rs 400 crore in FY09 and may have ended FY10 with over Rs 500 crore in topline and roughly Rs 120 crore in EBITDA. The existing PE investors could be looking at nearly 30 times EBITDA numbers as enterprise valuation, almost reflecting Abbott's deal to acquire Piramal's prescription business for $3.72 billion.

"We are bound by confidentiality agreements with our investee companies and hence I am not able to comment on your queries," said JM Trivedi, South Asia Head of Actis told VCCircle, in response to queries pertaining to appointment of investment bank and the financial details of Paras. A spokesperson for Morgan Stanely declined to comment.

The sale process is still in the initial stages, and a potential transaction could be an early 2011 story. On Tuesday, Bloomberg first reported that Actis and Sequoia were putting Paras Pharma on the block. One industry source said investment bankers have started approaching potential suitors to explore early interest.

Several global pharma majors like Glaxo-SmithKline and Sanofi-Aventis are betting on OTCs and neutraceuticals market in a big way globally. MNCs like GSK Consumer has had a consumer portfolio with blockbuster brands like Horlicks, but has largely shied away from expanding this segment. Last year, Abbott made a failed attempt to buy the nutritional business of the troubled Wockhardt Ltd.

But the increasing attraction of the Indian consumer market may prompt the MNC pharma to bet big bucks on OTC brands, after chasing the domestic branded formulations (prescription) market for a while. The pharma industry M&A valuations have been hitting new highs ever since Daichi Sankyo paid 22 times EBITDA for Ranbaxy Laboratories in 2008.

Domestic FMCG like Emami, Dabur and Godrej Consumer Products could also look at Paras Pharma, but they may find the valuations rich as compared to their global peers. Another wildcard possibility would be global FMCG giants wanting to expand their business categories, like how Procter & Gamble gobbled up Gillette for $57 billion in 2005. Both P&G and Unilever have presence in the consumer health segments globally.

Actis picked up an over 60% stake in Paras since 2006 in various tranches and has invested $145 million in the firm, as per a report on its website. Sequoia Capital had invested another $12 million in 2006 in Paras. The firm's revenues have grown by 32% with EBITDA increasing by 51% this year.

Actis has also invested in another Paras Group firm called Sterling Add-Life Medical, which is a hospital chain based in Gujarat.

After the stake buy, Actis also roped in former Dabur International honcho S Raghunandan, who has served a stint with Unilever, as CEO of Paras. The new management and owners also revamped Paras' sales and distribution and launched new products like D'Cold Natural cough syrup with active Haldi and Moov Neck & Shoulder. The firms products are now available in 40 countries and its also eyeing markets like Middle East and North Africa.

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